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Wednesday April 23, 2014



Despite Good Results, Dollar General's Stock Stumbles

Dollar General (DG) reported its first quarter results on Tuesday, June 4. Despite earnings that matched expectations, Dollar General's share price fell 7.4% after the report was released. This was the largest decline of any stock on the S&P 500 Index.

Dollar General reported net sales for the quarter of $4.23 billion, an 8.5% increase over the comparable period from last year. This sales figure was in line with expectations as analysts polled by S&P Capital IQ expected net sales of $4.24 billion.

Another positive for the company was a 2.6% same-store sales increase that reflected increased customer traffic. This increase was an improvement over same-store sales declines at larger discount rivals Wal-Mart and Target.

Rick Dreiling, Dollar General's Chairman and CEO, commented on the same-store sales increase: "For the quarter, we achieved same-store sales growth of 2.6% reflecting strong growth in our consumables categories offset by softer sales in seasonal and weather-sensitive categories." Consumables consist of goods that need to be replaced such as paper or pens. Mr. Dreiling went on to explain that he believed the strong growth in consumables "is a sign of the underlying health of our business."

As previously noted, Dollar General's stock price fell 7.4% on Tuesday. This fall was not unique to Dollar General, however, as rivals Family Dollar, Dollar Tree and Big Lots all saw their stock prices fall during the week. Some analysts believe investors' flight from discount store stocks reflects the increasing economic pressures on low-income shoppers.

Dollar General (DG) shares ended the week at $51.09.

JoS. A. Bank Displays Disappointing Earnings

Jos. A. Bank Clothiers, Inc. (JOSB) announced its first quarter earnings on Wednesday, June 5. The company announced disappointing sales and income figures for the quarter. Overall, net profit fell 45% from the comparable quarter last year.

For the quarter, the company's sales fell 2.6% to $191.6 million. This fall reflected the fact that comparable store and Internet sales fell a combined 6.4% from the first quarter of 2012.

The company's net income for the quarter also was disappointing. Net income fell to $8.1 million, which compared unfavorably to net income of $14.8 million in the first quarter of 2012.

Regarding the quarterly results, R. Neal Black, President and CEO, said, "While we were able to control our expenses and improve our advertising efficiency in the quarter, our sales declined 2.6%, primarily in April." He went on to explain that the company's gross profit margin fell as a result of higher inventory costs and lower average selling prices. Even though quarterly results were disappointing, Black tried to put a positive spin on the news, saying "despite the slow start to the new year, the first quarter of fiscal 2013 was still profitable."

Although Mr. Black remains upbeat, analysts at Johnson Rice do not. They indicated that they prefer JoS. A. Bank's rival Men's Wearhouse because it is "less weather sensitive, with a lower casual assortment in the mix, and more exposed with the modern fit trend." The modern fit trend is perhaps what has prompted Jos. A Bank to add additional slim-fit suit inventories this spring.

Despite a weak first quarter, JoS. A. Bank's share price has risen 7.4% in the past twelve months. The question remains whether the stock can rebound going forward.

JoS. A. Bank Clothiers Inc.'s (JOSB) shares ended the week at $42.20.

Quicksilver's Earnings Quickly Disappoint

Quicksilver, Inc. (ZQK) announced its second quarter results on Thursday, June 6. The company's results fell short of expectations. Consequently, Quicksilver's stock fell 10% to $6.90 in after-hours trading on Thursday.

The company reported revenue of $459 million for the quarter, down 7% from the comparable period last year. This number was especially lackluster as analysts had expected revenues for the quarter to be $46 million higher. The revenue loss came primarily from overseas markets, including Europe, Africa, Asia and the Middle East.

In addition to the bad revenue news, Quicksilver reported an adjusted net loss for the quarter of $20 million, or $0.12 per share. Once again, analysts' expectations were shattered as they expected Quicksilver to post a profit of $0.04 per share.

Commenting on the second quarter results, Andy Mooney, President and CEO, said, "Our second quarter performance reflects net revenue declines primarily within our EMEA wholesale channel, along with lower gross margins across all three flagship brands, particularly within DC." Mr. Mooney indicated Quicksilver hopes to right the ship with a reorganized management structure and a new leadership team. He said that over time the company believes that "our new focus and structure will allow us to significantly improve profitability, working capital efficiency and competitive positioning."

Quicksilver, Inc. (ZQK) shares ended the week at $6.83.

The Dow started the week at 15,116 and closed at 15,248. The S&P 500 started the week at 1,631 and closed at 1,643. The NASDAQ started the week at 3,456 and closed at 3,469.

Treasuries Fall on Surprisingly Upbeat Employment Data

Treasuries fell on Friday after a surprising U.S. jobs report showed payrolls increased more than expected in May. Payrolls increased despite the fact that the unemployment rate also increased slightly. The positive jobs news did nothing to halt investor speculation over the past few weeks that the Federal Reserve will begin to slow its bond-purchasing program.

During early Friday trading, the 10-year note yield fell 8 basis points to 2.15%. Despite the fall, yields were still up two basis points on the week. Yields move inversely to prices, so as yields rise prices fall. Yields on the 30-year bond were up 7 basis points to 3.31%.

The U.S. jobs report for May showed that 175,000 jobs were added, although April's jobs number was revised slightly downward to 149,000. The jobs report was a positive surprise as analysts had expected the economy to add only 164,000 jobs during the month. The positive jobs number could not stop the unemployment rate rising from 7.5% to 7.6%, a result of more people entering the pool of unemployed individuals looking for work.

The May jobs report was not surprising to William Larkin, a fixed-income portfolio manager at Cabot Money Management, Inc. "The [jobs] number was right in line," he said. "The market was expecting a restraining growth number."

The uncertainty surrounding the Federal Reserve's bond-purchasing program continues to loom over the Treasury market and the stock market. Economists are concerned that the Federal Reserve will decide to reduce its bond purchases from $85 billion a month to $65 billion a month starting in the fourth quarter. This number is higher than last month's expectation of a drop to $50 billion.

"I don't think today's report says anything about tapering at all," said Bill Gross, co-founder of Pacific Investment Management Co., the world's biggest bond fund. "But I think ultimately in order to get a more normal economy, the Fed has got to move interest rates up to more normal levels."

The 10-year Treasury note yield finished the week at 2.16% while the 30-year Treasury note yield finished the week at 3.32%.

Interest Rates Keep Moving On Up

On June 6 Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS). The results show average fixed mortgage rates rising for a fifth consecutive week. Freddie Mac attributed the continued rise in rates to concerns that the Federal Reserve may soon slow its bond-purchasing program.

The 15-year fixed rate mortgage averaged 3.03% this week. This represents an increase from last week when it averaged 2.98%. Last year at this time, the 15-year fixed rate mortgage averaged 2.94%.

The 30-year fixed rate mortgage averaged 3.91% this week. This represents an increase from last week when it averaged 3.81%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.67%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on the impact of concerns that the Federal Reserve may soon curtail its bond purchases. He said, "In its June 5th regional economic conditions report, known as the Beige Book, the Federal Reserve noted that overall economic activity increased at a modest to moderate pace over April and May in all its districts except for Dallas which indicated strong economic growth. In addition, pending home sales rose in April to its fastest pace since April 2010 and May's consumer sentiment was revised upwards to its highest reading since July 2007."

The money market fund finished this week at 0.4%. The 1-year CD finished at 0.6%.

Published June 7, 2013

Previous Articles

Is Tiffany & Co. a Diamond in the Rough?

Home Depot Reports Quarterly Results

Macy's Reports Quarterly Earnings

Walt Disney Reports Second Quarter Results

DreamWorks Animation Reports Quarterly Earnings

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